Ireland’s central bank chief compares cryptocurrencies to a Ponzi scheme

Unbacked digital assets are more akin to a ‘Ponzi scheme’ than to investments, and pose risks to consumers that must be safeguarded against. This was stated by Gabriel Makhlouf, governor of the Central Bank of Ireland.

In his view, there is an urgent need for policy action to achieve a ‘tough’ regulatory regime to safeguard citizens’ financial security.

“A regulatory regime that properly protects the market from fraud, manipulation and money laundering, and also ensures financial stability, is an important next step. As authorities, we must ensure equal conditions for business in the EU and consumer protection,” Makhlouf wrote.

He added that the Irish Central Bank distinguishes between backed and unbacked cryptocurrencies. The regulator is “open to the potential” of the former but regards the latter with skepticism, the official explained.

Makhlouf believes that unbacked digital assets are not properly regulated, and their purchase can lead to significant losses.

“Investing in such products is like buying a lottery ticket: you may win, but it is unlikely. Therefore it’s not worth calling them investments. A ‘Ponzi scheme’ provides a more accurate definition of cryptocurrencies,” Makhlouf said.

In April, the European Parliament approved the MiCA draft regulation regulating the crypto-asset markets MiCA. The new rules will come into force in 2024.

In March, former Belgian finance minister and current member of the European Parliament Johan van Overtveldt urged authorities to ban cryptocurrencies in the wake of the banking crisis.